"Looking at a possible worst-case scenario, the conversion of...

"Looking at a possible worst-case scenario, the conversion of SPARCS could be 45% dilutive to BBI security holders. In the scheme of things,........... "

"......and a maximum possible conversion on 17 May (i.e. 50% of the SPARCS or 73.1 million) this would add another 1,919 million ordinary securities - having a 45% dilutive effect. "

I'm not sure if that is the worst-case scenario. Perhaps my logic is a bit screwy, but this is my rational.

The analyst is assuming maximum conversion of 50%, so I am assuming that he came up with a 20 VWAP of $0.03 based on how the market would respond to 45% dilution (all else been assumed equal in the interim). The 50% not converted will get the interest on the new terms.

If on the other hand only 25% were converted, then presumably the 20 VWAP would be slightly higher. The dilution would not be as much due to a) less sparcs being converted and b) each sparc converted getting less BBI (due to the higher VWAP). The other side of the coin is that 75% of the sparcs will be getting interest on the new terms, rather than 50%, thus having a bigger draw on future cash.

The problem as I see it is that no one knows what the conversion % will be, so the 20 VWAP will be based on the markets best, but blind, judgement. So a worse case scenario might be that only 25% (or some number less than 50%) decide to convert, but the market assumes full take up, so the 20 VWAP is lower than it should have been. In other words, b) in the previous paragraph doesn't come into play and dilution is slightly more than it should have been for the actual percentage taken up.

Of course it could work the other way. If the market assumes no conversion, then the VWAP will be higher again than in the 25% scenario. But should there actually be a significant amount converted, then they will not get as much BBI as they should have got, due to the VWAP being higher than it should have been.

All a bit too academic, so I think I will take my afternoon nap now. But it does highlight how vulnerable dilution is to the 20 VWAP. Again, ignoring everything other than today's announcement, in addition to over-estimating the potential dilution, the market might also cause the VWAP to slump if they place too negative an interpretation on why only a share exchange was offered and no cash. In the analyst's example, a VWAP of $0.02 instead of $0.03, would add 2,878M more securites instead of 1,919 more, making the dilution 55% instead of 45%.

BBI holders should hope there is no run of misinformed negative analysis during the 20 day VWAP calculation period.